The balance of payments constrained growth model: empirical evidence for Bolivia, 1953-2002

Abstract

* * * SUMMARY Much of the theoretical and empirical literature ha s focused on supply factors when studying economic growth determinants, leaving aside demand factors. The present study, instead, analyzes external demand factors as determinants of Bolivian economic growth between 19532002 utilizing models introduced by Thirlwall (1979 ). According to cointegration analysis, exports were an important determinant in Bolivian e conomic growth for the whole period. Later analysis of other variables showed that real exchan ge rates presented a negative relationship in respect to long term growth. Further results show t hat Bolivian imports are more elastic than exports before a growth of the GDP, producing a negative impact on the trade balance. Our hypothesis is that the economic model implemented since 1985 has increased the external constraint of the country causing a process of “dei ndustrialization”.